On The Money Grain Commentary 3-13-14

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Corn Outlook:

The rally in corn met a road block on Monday when the USDA increased world ending stocks 0.7 percent to 158.4 million tons.  In addition, traders were expecting a reduction in Argentina’s production but it remained unchanged at 24.0 million tons.  Brazil’s crop was also unchanged at 70.0 million tons.  Meanwhile, U.S. 2013-14 ending stocks fell slightly to 1.456 BB.  While the USDA raised exports to 1.625 BB, feed consumption stayed the same at 5.3 BB.  Because of the widespread PED virus in hogs, it will likely be lowered next month.  Export inspections last week were decent at 36.7 MB.  The trend following funds were active last week as they added 275 MB to their long position increasing it to 460 MB.  Look for corn to take its cue from wheat until the grain stocks and planting intentions report on March 31st.

July corn peaked last week at 506, which was near a target mentioned in previous comments at 508.  The market fell to 477.25 on Tuesday and recovered.  The pullback from 506 resembles a correction as well as the rebound from Tuesday’s low.  The trend indicators are neutral suggesting that a sideward pattern is likely.  In the meantime, if 506 is exceeded, look for a move upward to 516-521 with a top during the period of March 19th-21st.  This would coincide with the seasonal tendency for a decline from mid March through the end of April.  Meanwhile, failure of 477.25 implies that the recovery from the January low at 421.75 is done and that a setback to 464 or 454 can be expected.  Next week, the odds are even as to whether July corn will be higher or lower.

Bean Outlook:

     The rally in soybeans has been uprooted as the market suffered its biggest one-day loss on Monday since the advance began in January.  Factors contributing to the decline are prices being at their most overbought level since June 2013, and the funds sporting a long position of 890 MB.  In addition, USDA’s 2013 ending stocks estimate on Monday was 145 MB, slightly above the trade guess of 141 MB.  While this is a tight number, many traders thought that it would be less than 140 MB because of the brisk export pace.  Brazil’s production was in line with guesses at 88.5 million tons, down 1.5 million from last month.  Argentina was unchanged at 54.0 million tons.  Although world stocks are down 3.3 percent to 70.6 million tons, stocks-to-usage are 26.1 percent and in the upper third of the twenty-year range.  Export inspections remain robust at 55.3 MB with China taking 21.6 MB or 39 percent of shipments.  However, this is the lowest percentage taken by them since mid January.  Be aware that China’s economy is slowing as reflected by their exports in February falling 18.1 percent from a year ago.  Although traders are focused upon potential cancellations by China, they are beginning to look toward the planting intentions report on March 31st.  The USDA’s Ag Forum in February projected acres at 79.5 million, but it may be higher if lingering winter conditions delays corn planting.

      July soybeans topped last week at 1429 and fell to 1350.25 on Wednesday for a decline of 5.5 percent.  As it stands now, the advance from the January low at 1234 is probably over.  Prices rebounded to 1394.5 on Thursday and should meet additional resistance at 1400-1409.  The recovery may take until March 19th to complete.  Once it is done, there could be a sell-off to 1330 or 1308.  Be aware that while we have deviated from the seasonal norm this year, there is a tendency for prices to trend downward from mid March through the end of April.  Next week, the odds are 70 percent that July soybeans will be higher.

 Wheat Outlook:

The rally in wheat hit a speed bump on Monday when world ending stocks were projected at 183.8 million tons exceeding traders expectations.  U.S. ending stocks were less than anticipated at 558 MB.  However, we have since recovered and risen to a fresh high as traders are concerned about dry conditions in the southern Plains.  This could become a factor when the crop breaks dormancy later this month and moisture is needed for plant growth.  Tensions between Russia and the Ukraine are also lending support.  Export inspections were at the low end of estimates and below the average needed to reach USDA’s projection of 1175 BB.  However, the pace of shipments are on track to meet their target.  The trend following funds continue to unwind their short futures position as they bought 80 MB last week reducing it to 195 MB.

Technically, wheat is the darling of the grains.  Since bottoming at 557.25 in late January, prices have risen to 700 on Thursday for a gain of 26.6 percent.  This was followed by a break to 675.25 Thursday.  Longer-term, there are three wave patterns under observation.  One shows the market climbing to 712-717 as the next high.  The second points to a rally to 731, while a more bullish pattern shows prices advancing near 771.  As it stands now, the cycles lean to a top occurring around March 19th or March 26th.  If we rally to 771, there may not be a peak until April 11th.  For now, a decline below 657 forewarns that the rally is stalling.  Next week, the odds are even as to whether July wheat will be higher or lower.

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